SanketPatil
Hi
KarishmaBMy confusion: To justify option B (presumably arguing Drafir's exports will increase when Pundra weakens), don't we need to assume all manufactured goods are currently being exported?
My reasoning:
Drafir might be at "peak production capacity" (100 goods)
But current exports could be lower (70 goods) due to market limits/competition
When Pundra weakens, Drafir could export more of its existing production (100; or anything more than 70/100) without needing extra capacity
Question: If this is true, why does peak production matter? Couldn't exports grow purely from market share gain, regardless of capacity status?
What logical gap am I missing, and how can I avoid this in CR questions?
A sector operates at the level at which the demand is for its products. If an economy consumes 100 units of laptops, the laptop manufacturers together will make 100 laptops over long term.
If an industry is operating at capacity, it means that it has capacity to make only 100 laptops and it is making and selling those. Increasing capacity requires high Capex and time.
Even if the outside economy demand for the laptops increases, the companies can still make 100 only (since they only have infra for making 100) which are meeting the current domestic demand. Typically industries export what doesn't get consumed domestically. If domestic demand is not met, the domestic price will rise and hence the manufacturer will have more incentive to sell domestically only.
So if the industry is operating at capacity, the probability that exports will increase meaningfully even if demand outside increases is low. That is why it weakens the plan - not destroys it, but weakens it.